Fed wobbles, stocks stabilise, and we start from square one once again. President Trump has launch yet another attack at Jerome Powell’s Federal Reserve Bank for its observably hawkish approach to US monetary policy. The reserve bank will meet tomorrow to decide whether to raise its domestic interest rates for the fourth time in 2018. Interest rates in the United States of America currently operate within a band between 2.00 and 2.25%. At present the market is still pricing in a 25-basis point hike to the lower and upper bound of this rate following tomorrow’s meeting. However, Trump’s vitriolic attack on the Reserve yesterday highlights just how much popular, political and market criticism there is against this decision:
The interest rate differential between the United States and the rest of the developed world has been the major driver of Dollar strength throughout 2018. However, investors’ confidence and belief that the Federal Reserve will continue to normalise monetary policy beyond present levels is beginning to fade, opening the door to Dollar weakness. President Trump reinforced his attack on Chairman Jay Powell’s persuasion to raise rates today, once again turning to social media:
The criticism has led market participants to question whether the Fed might succumb to the political pressure that the White House is placing upon the supposedly independent monetary policy authority. Unsurprisingly, the threat to the Dollar’s driver of growth led to early selling pressure at market open this morning. However, following two consecutive days of declines within US stock market indices, early positive futures markets and a strong bid on equities at market open in New York supported the greenback and outweighed the concerns on monetary policy. If the Fed does not hike monetary policy tomorrow evening (UK time), the Dollar should be hindered by weakness amidst a glut in supply. Markets at the moment still expect a hike but it is clear from looking further ahead in the curve that they are seriously doubting the commitment of the Fed to raise rates in the coming months. A no-hike could signal the end of peak Dollar strength leading into 2019.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Morning Brief – UK Wages
Humphrey Percy
Fri 26 May 2023
UK Wages Bank of England Governor Andrew Bailey yesterday warned of the pressure on wages that are threatening to lead to a wage price spiral as the effects of inflation on the cost of living together with the 12 consecutive interest rate rises that consumers have experienced. The market has not enjoyed the poor inflation […]
Morning Brief – UK inflation – June hike worthy?
Charles Porter
Thu 25 May 2023
UK inflation – June hike worthy? Yesterday’s inflation data surprised markets. The data was released slightly ahead of European core trading hours. The lighter liquidity available at this time could have resulted in the short-term spike towards 1.2450 on cable and around half a cent to the mid-1.15s within GBPEUR. However, you could, and perhaps […]
Morning Brief – International Monetary Fund
Humphrey Percy
Wed 24 May 2023
International Monetary Fund With no sign of insouciance despite its 180 degree turn in a two month timeframe, the IMF yesterday reversed its downbeat if not disastrous forecasts for the UK and stated the UK is no longer heading for a recession and nor is it the weakest member of the G7 when it comes […]
